Developing countries have entered into a large number of bilateral investment treaties (BITs) as well as free trade agreements (FTAs) that include explicit obligations for the protection of intellectual property rights as "investments". These agreements fall outside the arena of multilateral standard-setting on intellectual property rights, and are being strategically pushed by developed countries to advance their industries' economic interests.

This study examines whether and how bilateral and regional investment instruments increase the scope and availability of IPR protection beyond current standards, reduce flexibilities available to developing countries under international treaties and can be used to expand the application in their territories of IPRs over biodiversity.

The study finds that:

 Bilateral investment treaties and investment chapters of free trade agreements go beyond international norms since they extend to intellectual property rights not covered by the World Trade Organisation (WTO) TRIPS Agreement and incorporate the "national treatment" principle without the exceptions provided for under international treaties.

 It is unclear the extent to which rights granted by investment agreements may be used to substantiate IPR claims through investment-related disputes. Areas of particular concern are the granting of compulsory licenses, since investors would be able to claim an economic loss, and the enforcement of disclosure of origin principles to prevent biopiracy, which may be challenged by investors as incompatible with international law.

 Biological materials collected under an access permit may be considered the "property" of the collector who, under a broad definition of investment, may claim protection as an investor with regard to the materials.

 There is no "international standard" relating to the protection of IPRs as an investment that could be invoked in the context of bilateral obligations to comply with "the highest international standards" imposed in some investment agreements.

 Because of the grey areas that investment agreements generate, they provide room for investment-related disputes to induce changes in national IPR legislation of developing countries, even if that legislation is TRIPS-compliant.

 The "most favoured nation" clauses in BITs and FTAs contribute to a global elevation of IPR protection standards. If negotiations on investment were initiated in the framework of the WTO, for instance, pressure to replicate the highest levels of investment protection for IPRs, as currently found in the bilateral treaties, can be expected.

Developing
countries have entered into a large number of bilateral investment treaties
(BITs), free trade agreements (FTAs) or regional trade agreements (RTAs) that,
among other matters, include provisions for the protection of foreign investors[1] on the basis of
most-favoured-nation and national treatment principles. Under these agreements,
host countries assume broad obligations for the protection of foreign
investments, particularly against expropriation and strife.

Policies
welcoming foreign investments have become a common feature in developing
countries in the last fifteen years, after the failure of attempts to impose
some forms of control over the activities of transnational corporations and the
flows of foreign direct investment (FDI) and technology.[2] Investment agreements have
been regarded by some developing countries as an instrument to attract foreign
investors. The number of BITs quintupled
during the last decade, rising from 385 at the end of the 1980s to 1,857 at the
end of the 1990s, while the number of countries involved in bilateral
investment treaties reached 173. By 2002, 2,181 BITs had been established
(UNCTAD, 2000 and 2003). There are more than 172 RTAs in force; a small, albeit
growing, minority of them also deal with investment issues (OECD, 2003, p. 65).

Despite expectations about the impact of BITs on FDI,
there is no evidence indicating that the adoption of BITs has actually
encouraged FDI flows to signing developing countries. While half of OECD (Organisation for Economic
Co-operation and Development) FDI into developing countries was covered by a
BIT by 2000, the increase in FDI flows to those countries over the previous two
decades were accounted for by additional country pairs entering into agreements
rather than signatory hosts gaining significant additional foreign direct
investment (Hallward-Driemeier, 2003).[3] BITs, FTAs and RTAs, however,
permit developed countries partners to influence the domestic political economy
of developing countries and advance the interests of their corporations in the
latter markets. The establishment of
BITs and investment rules in FTAs has strategic value for developed countries,
especially the major capital exporters. Though not all investment agreements
ensure market access (to the extent that pre-establishment rights are not
recognised),[4] they
provide broad post-establishment rights, including in some cases the possibility
of directly bringing complaints against host States and obtaining compensation.[5]
The USA started to include provisions
on intellectual property in its bilateral investment treaty program during the
1980s, at the same time it was pushing for the negotiation of what became the
WTO Agreement on Trade Related Intellectual Property Rights (TRIPS) and forcing
advanced developing countries, like South Korea and Brazil, to bilaterally
negotiate higher standards of IPR protection (Drahos, 2003).

OECD countries attempted to
develop a Multilateral Agreement on Investment (MAI) in the 1990s, but after
significant divergences among OECD countries and opposition from civil society,
the initiative collapsed. An attempt is currently underway to incorporate, as
one of the "Singapore issues", investment rules in the already
burdened agenda of the World Trade Organisation. The outcome of the WTO
Ministerial Conference in Cancun, however, shows a strong resistance by
developing countries to accept new disciplines on investment as a component of
the WTO system.

While negotiations on intellectual property rights in WTO are
virtually paralysed, and the launching of negotiations on investment finds
strong opposition, developed countries, notably the USA, have turned to bilateral
dealings to advance their industries' economic interests and obtain
"WTO-plus" concessions from developing countries. The USA has concluded BITs[6]
with a large number of countries (see Table 1) and several FTAs[7]
including rules on investment, as well as IPRs, with Australia, Jordan, Singapore, Chile, Morocco and the Central American countries. There are ongoing negotiations
with Bahrain, the Southern African Customs Union, Thailand, Panama and four Andean countries (Bolivia, Ecuador, Peru and Colombia).[8]
Powerful and well articulated business interests[9]
actively push for standards that erode the flexibilities left by the TRIPS
Agreement, and carefully monitor[10] how
much the US government achieves in imposing TRIPS-plus standards on weaker
countries.

Although investment agreements do not include detailed regulations on
IPRs, they incorporate a broad
definition of "investment" that generally covers such rights. Such
agreements, hence, may influence
the exercise of IPR laws and, particularly, the capacity of host countries to
control the acquisition and use of IPRs by foreign title-holders.

This paper focuses primarily
on BITs, as well as FTAs and RTAs that include investment rules,[11]
negotiated between developed and developing countries. It examines whether and
how investment agreements:

 expand the scope and
effectiveness of IPR beyond current national and international standards;

 reduce flexibilities in
managing IPR that are currently available to developing country
governments under the TRIPS Agreement; and

 might be used to expand
the reach of IPR over biodiversity and related processes and information.

The core of the study is an
analysis of key provisions of investment agreements[12]
that could have a bearing on the scope and effectiveness of IPR in developing
countries.

1. Assets as investments

As
contained in BITs, the Energy Charter Treaty, NAFTA and recently negotiated
FTAs, "investment" is an all-encompassing concept including almost any
kind of business activity. The definition of "investment" in
generally based on the concept of asset. All assets of an enterprise,
such as movable and immovable property, equity in companies, claims to money,
contractual rights, intellectual property rights, concessions, licenses and
similar rights are included. This concept is broader than FDI, as it
encompasses portfolio investments (UNCTAD, 1996, p. 174).[13] Box 1 contains, as an
example, the definition of "investment" incorporated into the recent
US-Chile FTA.

Box 1: Definition of "investment" in the US-Chile FTA

Investment includes:

a) an enterprise;

b) shares, stock, and other forms of equity participation in an enterprise;

h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges.

Some investment agreements generally refer to IPRs,
while others explicitly indicate the types of IPR covered. For instance, the
BIT between USA and El Salvador (1999) specifies that "investment"
includes:

 copyrights
and related rights,

 patents,

 r ights
in plant varieties,

 industrial
designs,

 rights
in semiconductor layout designs,

 trade
secrets, including know-how and confidential business information,

 trade
and service marks, and

 trade
names.

In some
investment agreements[14]
reference is also made[15] to
"technical process" or "know how" and "goodwill".[16] An open question is also the extent to
which modalities of IPRs not existing in the host country at the time of entry
into an investment agreement (e.g. plant variety protection)[17] would be considered covered investments.
An affirmative reply to this question may be grounded in the fact that
investment agreements are intended to protect current and future investments,
and in the application of catch-all provisions embracing, as in the example
above, any other
"intangible property".

The
definition of "investment" in investment agreements covers assets in all
sectors of the economy, including agriculture, natural resources,
manufacturing and services. The implications for biological resources are
addressed below.

Investment
agreements protect assets under the direct or indirect control of foreign
investors. National laws differ on what "control" means. There is no
international standard to judge when certain types of rights, or even a de
facto situation, may be considered as equivalent to an actual control over
assets. In addition to the difficulties in determining when control exists, a
broad concept of "indirect" ownership or control may lead to the
protection of investors who lack a substantial business activity in the host
country, such as when an investment is made by a firm established in another
contracting party, but owned or controlled by a party in a non-contracting
party.[18]

Given the broad coverage of these definitions,
some investment agreements -- like NAFTA Chapter 11[19] -- include a general rule
accompanied by an illustrative list of covered investments, as well as a
"negative" list of areas specifically excluded from the scope of the
agreement. In the negotiation of the draft MAI, a proposal was made to include an interpretive note indicating
that in order to qualify as an investment, certain characteristics must be
present, such as the commitment of capital or other resources, the expectation
of gain or profit or the assumption of risk (Schekulin, 1997, p. 12). This
characterisation appears in recent FTAs, like the US-Chile FTA, and in the
draft US model BIT (2004).

These
characteristics would exclude from the definition trade operations and
financial transactions as such.[20] However, claims to money and any form of
credit may be covered assets; therefore, the definition would apply to the
rights arising from trade transactions or from bank operations, including bank
deposits. Moreover, case law under NAFTA seems to indicate a troubling trend to
consider some of those features as sufficient to define, by themselves, when a
covered investment exists -- for instance, when the expectation of a market
share is frustrated. In S.D. Myers v. Canada, the Tribunal ruled that
the scope of "investment" includes such assets as market share in a
sector, and access to markets in the host state, whether or not the investor
owns a physical plant or retail store in that country.[21]
In short, almost any kind of business activity can constitute an investment
that is subject to protection (IISD, 2001, p. 23).

2.
IPRs as investments

Intellectual
property rights (IPRs) are deemed an "investment" in investment
agreements, which generally include a specific reference to that effect. In the
absence of exceptions or other specifications,[22]
the usual broad "assets" definition would cover any type of
IPRs acquired in the host country. Some questions, however, may arise with
regard to the scope of the definition.

Unregistered IPRs

Copyright
and trade secret protection do not require registration to confer rights
against third parties. The lack of registration does not seem to affect the
status of such rights as covered investments. As noted, some BITs and FTAs
explicitly mention these categories of non-registered rights.

IPR applications

Patents,
trademarks, industrial designs and other IPRs can only be acquired through a
registration process, upon demand by the interested party.[23] The right is conferred
once the application is processed and approved. Thus, a patent application
creates a mere expectation of obtaining an exclusive right and, hence, a
profit. However, patent applications may be traded and, in some countries, they
generate rights even before grant, for instance to act against infringers.
Though it is clear that a still unregistered invention is not an IPR, it may be
argued that the application is, in any case, an "intangible property",
as long as it is "owned" and can be assigned to third parties.

Some
investment agreements (e.g. Canada-Argentina BIT, 1993) refer in the definition
of "investment" to "rights with respect to copyrights,
patentsÂ…" (article 1 (a)(iv)) rather than to "copyrights, patentsÂ…",
etc. as such (e.g. Canada-Barbados, (article 1(f)(v)). This wording may be
intended to encompass not only granted intellectual property rights, but also
IPR applications.

The
US-Jamaica BIT refers to "patentable" inventions (article
I.1.(a)(iv)). Could this be understood as covering inventions which are
potentially patentable in the host country but for which a patent has not yet
been obtained or a patent application filed? It would be very hard to
successfully make this argument. According to the same BIT,
"investment" includes every kind of investment "in the territory of one Party owned or
controlled directly or indirectly by nationals or companies of the other
Party" (article I.1(a)). If no patent was obtained, even if the invention
were patentable, there would be no investment "in the territory" of
the host country, as the invention would be in the public domain and, hence, out of the
control of the inventor.

Subject matter not protected in the host country
but protected in the investor's or other countries

There
are cases where subject matter may be off protection in the host country while
protected elsewhere. This situation may arise in any of these cases:

 the IPR
owner in a foreign country has not claimed his rights in the host country;[24]

 the IPR has
expired or been revoked in the host country, while remaining valid in foreign
countries;

 the subject matter is deemed not
protectable in the host country -- for instance, in the case of countries
applying the exception allowed by article 27.3(b) of the TRIPS Agreement for
plant or animals, or in the case of countries which refuse patents on merely
isolated genes.

Since IPRs are granted on a
territorial basis, subject matter that is not protected in a given country
belongs to the public domain there. It cannot be deemed an asset owned or
controlled by a juridical or natural person. There is one exception, though, in
the case of well known trademarks which receive protection without prior
registration (article 16.2 of the TRIPS Agreement). Recent FTAs have not only
confirmed this exception but expanded it beyond the TRIPS standard, by
incorporation of WIPO's Joint Recommendation Concerning Provisions on the
Protection of Well-Known Marks (1999).[25]

3. National
treatment

The
national treatment principle is well established in IPR law. Since the adoption
of the Paris Convention for the Protection of Industrial Property in 1883, it
became a standard feature in most international agreements[26] on IPRs, as well as in
most national IPR laws.[27]
It is also incorporated in the TRIPS Agreement (article 3).

However, the adoption of the
national treatment principle in the TRIPS Agreement, as well as in other
international agreements on IPRs (such as the Paris, Berne and Rome Conventions
as well as the Washington Treaty), is subject to a number of carefully
negotiated and drafted exceptions.[28]
Thus, article 3.1 of the
TRIPS Agreement stipulates the following:

Each Member shall accord to the
nationals of other Members treatment no less favourable than that it accords to
its own nationals with regard to the protection of intellectual property,
subject to the exceptions already provided in, respectively, the Paris
Convention (1967), the Berne Convention (1971), the Rome Convention or the
Treaty on Intellectual Property in Respect of Integrated Circuits. In respect
of performers, producers of phonograms and broadcasting organisations, this
obligation only applies in respect of the rights provided under this Agreement.
Any Member availing itself of the possibilities provided in Article 6 of the
Berne Convention (1971) or paragraph 1(b) of Article 16 of the Rome Convention
shall make a notification as foreseen in those provisions to the Council for
TRIPS.

The
implications of these exceptions in the context of investment agreements raise
interesting issues. For instance, in the case of performers, producers of phonograms and broadcasting organisations, the
fact that protection under the TRIPS Agreement is limited to "the rights
provided under this Agreement" means that Members may discriminate with
regard to other rights, such as the participation of local and foreign
performers in funds generated by levies on blank tapes. It is unclear the
extent to which an exception of this type would survive the all-encompassing
national treatment principle as applied in
the context of investment agreements. Could a foreign performer successfully
claim that denial of national treatment discriminates him as an
"investor"? It may be argued that protected rights are only those
conferred under the domestic law. However, the solution to this and to similar
cases may remain an open question until the issue is clarified by case law.

The
vast majority of BITs does not include binding provisions relating to the
pre-establishment (admission) phase, but only apply after an investment
has been made. However, most BITs of the United States and some recent treaties
of Canada require the application of the national treatment to both the pre-
and post-establishment phases.[29] This
broad coverage may provide, unless a specific exception is made,[30]
a legal platform to claim national treatment with regard to the acquisition of
IPRs.[31]

4.
Most-favoured-nation clause

The
most-favoured-nation (MFN) clause is not present in pre-TRIPS international
conventions on IPRs. It was incorporated in article 4 of the TRIPS Agreement,
with a number of exceptions.[32] This provision means, for instance, that
in case more advantageous conditions were granted to members of a regional
agreement (established after the entry into force of the WTO Agreement), such
conditions should be extended, automatically and unconditionally, to all WTO
Members.

The MFN clause in the context of investment
agreements obliges the host country to extend to investors from the contracting
party treatment no less favourable than it accords to investors from other
countries. Different formulations of this clause may be found in investment
agreements. While the MFN clause aims at
creating equality of competitive opportunities between investors from different
foreign countries, it limits host countries' room for maneuver with respect to
future investment agreements, as it obliges the host country to unilaterally
extend to investors from treaty partners any additional rights that it grants
to third countries in future agreements (UNCTAD, 1999, p. 5)

Most
agreements refer to "treatment no less favourable". NAFTA (article
1103) and the draft US model BIT (2004) include the qualification that such
treatment applies only "in like circumstances".[33]
Many investment agreements entitle both foreign investors and their investments
to MFN (e.g. NAFTA and BITs concluded by Germany, Switzerland and the United Kingdom). Others, such as US BITs, only grant MFN to the investment. Still
another approach has been followed in the French model BIT, which gives MFN to
the investors with regard to their investments (UNCTAD, 1999, p. 6).

The
MFN principle as applied to IPRs in the context of investment agreements
implies that any future concession made will apply to IPR holders protected
under current investment agreements, even if the latter provide for narrower
rights. While in some cases tribunals have cautioned against importing into an
agreement rights recognised in other agreements that may be inconsistent with
the clear intent of, or significantly impact, the substantive rights agreed
upon by the parties (Cosbey, Mann, Peterson and von Moltke, 2004, p. 11), there
is a risk that the MFN clause be invoked to overrideÂ exceptions to certain
rights specified in a particular agreement and not recognised in an agreement
with other parties.

The
majority of investment agreements only contain MFN obligations for the
post-establishment phase. They, therefore, apply to IPRs after they have
been granted, and the host country can condition the acquisition of IPRs on the
fulfillment of certain requirements, including the granting of reciprocity to
its own nationals. In fact, reciprocity is required under some IPRs laws[34] and treaties,[35] and it will not be
affected as long as an investment agreement only applies to the
post-establishment phase.

The
right to require reciprocity has been retained, via an explicit exception to
the MFN clause, in some investment agreements. For instance, article 1108 of
NAFTA stipulates that articles 1102 (national treatment) and 1003 (MFN clause)
"do not apply to any measure that is an exception to, or derogation from,
the obligations under article 1703 (Intellectual Property-National Treatment)
as specifically provided in that article".[36]

5. Fair and equitable
treatment

The
MFN clause sets forth a contingent, relative standard of investment protection.
Many investment agreements also contain absolute standards[37] such as "reasonable"
or "fair and equitable" treatment,[38]
generally with regard to the post-establishment phase.

Although
the wording of this standard is ambiguous, and it may allow for different
interpretations,[39]
it provides a rule against which the policies and regulations of Contracting
Parties would be judged.[40]
While, historically, the "fair and equitable standard" was considered
to be breached when the State conduct was of an "egregious and shocking
nature", it has been applied in recent cases to conduct taken in good
faith, when investor expectations are frustrated by State action (Cosbey, Mann,
Peterson and von Moltke, 2004, p. 11-12).

In
some cases, the provisions relating to "fair and equitable" treatment
in investment agreements are supplemented by an obligation not to impair
investments by "unreasonable" and/or "discriminatory"
measures. Under the draft US model BIT (2004), this principle is also meant to
include the obligation not to deny justice in criminal, civil or administrative
adjudicatory proceedings "in accordance with the principle of due process
embodied in the principal legal systems of the world" (article 5.2(a)).

Could
a "fair and reasonable" type of standard be invoked in order to
challenge national IPR laws consistent with the TRIPS Agreement? Investors are
subject in each contracting party to the regulations and policies generally applicable to
the type of investment they hold or to the type of activity they undertake. As
stated by one commentator in relation to the draft OECD MAI, the "fair and
equitable" standard cannot be deemed as "designed to forbid any form of
regulation against foreign investors, but only discriminatory policies"
(Charolles, 1997, p. 18). In other words, said standard should not be used to
challenge the legitimacy of a regulation or a public action connected with IPRs
that is consistent with the applicable international rules as well as with
national laws, if it is not discriminatory.

It is to be noted that differentiation in legal
treatment is not the same as discrimination,
and that WTO members can adopt different rules for particular areas, provided
that the differences are adopted for bona fide purposes. A WTO panel
held in this regard that:

[TRIPS] Article 27 prohibits only
discrimination as to the place of invention, the field of technology, and
whether products are imported or produced locally. Article 27 does not prohibit
bona fide exceptions to deal with problems that may exist only in
certain product areas. Moreover, to the extent the prohibition of
discrimination does limit the ability to target certain products in dealing
with certain of the important national policies referred to in Articles 7 and
8.1, that fact may well constitute a deliberate limitation rather than
frustration of purpose.[41]

The Doha Declaration on the TRIPS Agreement and
Public Health,[42] in
particular, may be considered as authorising differentiation in intellectual
property rules if necessary to protect public health.[43]

6. Compulsory licenses

Inherent to most
intellectual property rights is the granting of exclusive rights. They
give the right holder the legal power to prevent third parties from using,
producing or commercialising the protected invention, sign or work. Such power,
however, is not absolute. Exceptions to exclusive rights may adopt different
forms.

On the one hand, national
laws may determine acts that can be performed by third parties without
infringing the applicable IPRs, such as the use of a patented invention for
private purposes, teaching and scientific research. This kind of exception
operates automatically -- that is, there is no need to request authorisation
from a court or other authority to use the protected subject matter, and any
party can benefit from the exception at any time without any remuneration to
the right holder. States' right to establish exceptions of this type is
recognised by the TRIPS Agreement.[44]

On the other hand, it is
possible to subject IPRs to a compulsory license.[45]
This is an authorisation given by the
government to a third party for the use, without the consent of the right
owner, of a patent or other intellectual property right. A compulsory
license may be subjected to time restrictions and other conditions,
particularly the payment of remuneration to the right holder. Governments may
also decide to use a patented invention for non-commercial purposes
(hereinafter "government use"), either by itself or through a
subcontractor.

The
granting and effective exploitation of a compulsory license may limit the
economic benefits that the patent holder may obtain from his
"investment". An important question in the context of this study is
whether the granting of a compulsory license may be deemed, under an investment
agreement, as an expropriation that could trigger legal actions against
the host State and compensation claims. Expropriation
rules, if found applicable, may in some cases be more beneficial to the patent
owner than the compulsory licenses rules, particularly because the obligation
to pay will rest with the government, and because investment agreements
normally provide for the investor's right to directly sue the State.[46]

Although a
compulsory license does not transfer the property of the affected IPRs, this
may not be sufficient to disregard a possible qualification of expropriation.
The reason for this is that the concept of expropriation is generally broadly
construed,[47] and
investment agreements
do not only include direct and full takings of property but also de facto or
indirect expropriation. Thus, Section 1110 of NAFTA prohibits direct expropriation,
indirect expropriation and measures tantamount to expropriation. The cases to
date have held that these last two terms have the same meaning: measures that
do not directly take investment property, but which amount to the same thing
(IISD, 2001, p. 31). Article 42.1 of the EFTA-Singapore
agreement (2002) stipulates that "None of the Parties shall take, either de
jure or de facto, measures of expropriation or nationalisation
against investments of investors of another PartyÂ…".[48]
The draft US model BIT (2004) indicates that "neither Party may
expropriate or nationalise a covered investment either directly or indirectly
through measures equivalent to expropriation or nationalisation" (article
6.1).[49]

The determination of whether a compulsory
license amounts to a de facto or
indirect expropriation must be made case-by-case. The mere fact that it may
have an adverse economic effect on an investment, standing alone, does not
establish that a de facto or indirect expropriation has occurred.[50] Moreover, a compulsory license would not
be questionable if it has been taken in the public interest and there is no
indication that it has an illicit purpose or is discriminatory, provided that,
in addition, an adequate remuneration is available.

A legally granted compulsory
license, hence, cannot be rightly described as an act of expropriation. But the
broad definition of "investment" and the coverage of de facto
expropriation, may be used to raise expropriation complaints in case a
compulsory license were granted. This possibility has been
anticipated by some investment agreements. For instance, NAFTA's provision on expropriation and
compensation (article 1110.7) includes an exception with regard to compulsory
licenses. Similarly, the FTA between Chile and USA stipulates that the
provision on expropriation and compensation "Â…does not apply to the issuance of compulsory licenses granted in
relation to intellectual property rights in accordance with the TRIPS
Agreement" (Article
10.9.5).

The incorporation of this
exception[51]
confirms that expropriation rules are potentially applicable to compulsory
licenses. While it may be difficult for
an affected patent owner to prove that an illegal expropriation has taken
place, if the conditions referred to above were complied with, cases may arise
in which claims of this type could be made -- for instance, when a patent owner
is dissatisfied with the determination of the level or mode of remuneration.[52]
Given the grey area that overlapping protections of investment and IPRs create,
investor's rights may be used to dissuade governments from using compulsory
licenses or to challenge their decisions. An exception to the expropriation
clause may protect against this possibility, provided that it is not neutralised
by the MFN clause incorporated in other investment agreements applicable to the
parties.

7.
Revocation/forfeiture

Another situation where expropriation rules may be invoked arises when a
patent is revoked or the rights otherwise forfeited before the normal expiry of
the patent. A patent may be generally revoked when it is found, by the
administration or a court, that it was granted in violation of patentability
rules or other provisions of the relevant law. In the USA, a patent may be also declared non-enforceable in case of lack of candor in providing information to the patent office[53].

Aggressive patenting strategies
by firms, particularly in the pharmaceutical and biotechnology sectors,
overload of work in patent offices, lack of qualified staff and low standards
applied to assess patentability have all led to the granting of a growing
number of "low quality" patents, or patents that should never have
been granted if properly examined.[54]

Though patents enjoy a
presumption of validity, as noted by the US Federal Trade Commission, the
circumstances in which they are granted "suggest that an overly strong
presumption of a patent's validity is inappropriate" and that "it
does not seem sensible to treat an issued patent as though it had met some
higher standard of patentability" (FTC, 2003, p. 8 and 10). When the
validity of a patent is successfully challenged, could the affected patent
owner raise claims under an investment agreement and, for instance, sue the
State and request the review of the decision or claim compensation?

The grounds for
revocation/forfeiture of a patent have not been dealt with in the TRIPS Agreement.
A patent may, thus, be revoked due to the lack of payment of annual maintenance
fees[55] or for
other reasons, such as abuse of a dominant position. The only provision in
TRIPS on this matter ensures the availability of a judicial review of any decision
to revoke/forfeit a patent. Recent FTAs however, restrict the right to
determine the reasons for revocation/forfeiture.[56]

The effect of the revocation/forfeiture of
any IPR, such as a patent or plant breeders' right, is that the protected
subject matter is put back into the public domain. There is no
"taking" of the property, stricto sensu, but certainly the
value of the IPR as an "investment" is diluted and arguments about indirect
or de facto expropriation can be made. NAFTA and other FTAs provide
for an exception to the expropriation clause if the revocation/forfeiture is
made consistently with the IPR rules contained in the treaty.[57] The FTA between Chile and USA stipulates that the provision on expropriation and compensation:

Â…does not apply toÂ…the revocation,
limitation, or creation of intellectual property rights, to the extent that
such revocation, limitation, or creation is consistent with Chapter Seventeen
(Intellectual Property Rights) (Article 10.9.5).

A
particularly controversial case may arise in connection with a requirement to
inform the country of origin or source of a biological material and its
associated traditional knowledge (TK) if non-compliance led to the revocation
of a patent. The disclosure of origin
obligation may contribute to address a major concern of developing countries:
the "biopiracy" of biological resources and TK. Despite the
complaints and pleas by developing countries affected by these practices, they
continue unabated as no preventive measures have been taken by countries that
most benefit from them, while the TRIPS Agreement has no rules to prevent such
occurrences.[58] Some
countries (e.g. Brazil, Costa Rica, India and the Andean Community) have
already implemented an obligation of disclosure eventually leading to the revocation/forfeiture
of IPRs[59] or the
invalidation of rights obtained in violation of access regulations.[60]
Additionally, a number of developing countries have proposed to amend the TRIPS
Agreement in order to formally introduce such an obligation.[61]

Although
Switzerland has suggested the adoption of a disclosure obligation of this type
in the context of the Patent Cooperation Treaty[62] and the European Union has also accepted the
possible consideration of this matter in the context of the TRIPS Agreement,[63] they oppose, together with other developed
countries, the introduction of an obligation the non-compliance of which would
lead to revocation/forfeiture of the conferred rights.

To the extent that a particular country applies its
national law consistently with the TRIPS standards, both substantively and
procedurally, and has not otherwise limited its capacity to enforce a
disclosure obligation of the type discussed above, expropriation complaints would seem legally
unfounded. It has been argued, however, that providing for
revocation/forfeiture in case of wrong or lack of disclosure of the origin of
biological materials and the associated knowledge, would be tantamount to
incorporating a new requirement for patentability not contemplated in
the TRIPS Agreement and, hence, incompatible with TRIPS article 27.1. If this
theory prevailed, the likelihood of succeeding in an investment complaint would
increase. Until the matter is clarified, or until the TRIPS Agreement is
amended, an investor-to-State claim would be a real threat to countries willing
to adopt and enforce a disclosure of origin obligation.

It is open to
discussion, however, whether failing to comply with the disclosure obligation
may be deemed as fraud or misrepresentation in obtaining the patent or as
"inequitable conduct" [64],
as provided for in some FTAs (e.g. US-Singapore, article 16.7.4).[65]

8. Parallel imports

"Parallel
imports" take place when a product is imported into a country without the
authorisation of the title holder or his licensees, to the extent that the
product has been put on the market elsewhere in a legitimate manner.[66]

Article
6 of the TRIPS Agreement recognises the possibility of legally admitting
parallel imports, based on the principle of "exhaustion of rights".
The principle was extensively developed in the framework of the European common
market in order to avoid market fragmentation and the exercise of
discriminatory pricing by title holders within the Community (Graz, 1988).

The
doctrine of exhaustion, which justifies parallel imports, has been applied with
respect to industrial property (e.g. patents and trademarks) as well as in
relation to copyright. This is also the approach followed by the TRIPS
Agreement. It is based on
the concept that the title holder has no right to control the use or resale of
goods which he has put on a foreign market or has allowed a licensee to
commercialise in such market. According to a broad version of this doctrine,
the consent of the title holder in the exporting country would not be necessary;
it would be enough to determine that the product was lawfully put on the market
(e.g. under a compulsory license).

The
admission of parallel imports may diminish the value of intellectual property
rights. Can this be considered an expropriation? To the extent that parallel
imports are legitimate, there is no or little room to argue that expropriation
has taken place. However, the above mentioned decisions adopted in the
framework of NAFTA Chapter 11, stating that market share constitutes an "investment",
raise concerns about possible expropriation claims in cases parallel imports
diminish an IPR owner's market share.

9. Highest international standards

Some bilateral agreements, such as those entered into
between the EC and their Member States and South Africa (1999), Tunisia (1998) and the Palestinian Authority (1997), among others, require the latter to
ensure adequate and effective protection of intellectual property rights "in conformity with the highest international standards".[67]

It is not evident what "the highest
international standards" are. This wording clearly excludes national standards.
But when can a standard be deemed "international" for the purpose of
this provision? There are international conventions with a large number of
members, while many others have attracted little interest. There are also
conventions, such as the WIPO Patent Law Treaty, that have not entered into
force, as well as a growing number of bilateral and regional agreements setting
IPR standards.

It may be interpreted that the concept of "international standard" includes any standard adopted in an
international instrument. This would, however, impose too broad and imprecise
obligations on the concerned countries. "International" may reasonably
be understood as covering multilateral, and not merely bilateral or regional,
agreements that were in force at the time such an obligation was accepted.[68]

There are other complications, however. The reference
to the "highest" standard assumes that there is no single standard.
If different levels of standards exist, there would be no generally
accepted practice that may be invoked in the context of said clause. The role
of international customary law under this clause is also unclear. Customary law
is a general practice accepted as binding law.[69]
The proof of customary law requires not only the existence of a practice by
particularly interested parties that can be objectively established, but also a
subjective element, the sentiment of being bound by a particular rule (Verhoeven,
2000, p. 325-330).

There are also ambiguities in relation to what the "highest" standard is. Significant room may exist to interpret this
rule in particular cases. For instance, all international conventions,
including TRIPS, allow for exceptions to patent protection (e.g. for plants and
animals pursuant to article 27.3(b) of TRIPS) as well as exceptions to title
holders' exclusive rights (e.g. article 30 of TRIPS). Since the international
standards include such exceptions, it would be illogical to argue that
the "highest" standard clause obliges contracting countries to forego
their right to provide for permissible exceptions.

Finally,
questions may arise as to whether "international standards" also
include protections based on non-IPR laws, such as investment rules. If, as
mentioned above, intellectual property is a covered investment, would "the
highest international standards" clause allow for claims based on
the application of investment agreements? The context of that clause would
suggest that the referred to "highest" standards are only IPR
standards, but the vagueness of the clause may leave room for invoking other
interpretations.

A key
consideration is that in the area of investment there are no multilateral
rules.[70] OECD
countries attempted to evolve a comprehensive GATT-type multilateral framework
on investment -- beyond what is covered under the WTO Agreement on
Trade-Related Investment Measures (TRIMs) and General Agreement on Trade in
Services (GATS) -- through the aborted initiative to establish a Multilateral
Agreement on Investment initiated in 1995.[71]
MAI was to be a legally binding treaty, open to non-OECD member states, to
ensure higher standards of protection and legal security for foreign investors.
OECD expected the proposed MAI to become a sort of benchmark for investors to
rate the treatment accorded to foreign investors. The OECD negotiations on the
MAI, however, could not be successfully concluded because of differences among
the OECD countries and were abandoned in 1998.

Even before the
MAI negotiations in OECD concluded, an attempt was made to push the investment
issue on the WTO's agenda. The EU and Canada proposed to create a Possible
Multilateral Framework on Investment (PMFI) under the auspices of the WTO at
its first Ministerial Conference in Singapore in 1996. OECD's MAI was to
provide a model for PMFI, if not to be adopted bodily. However, developing
countries resisted a negotiating mandate on the issue. A compromise was found
to establish a Working Group on Trade and Investment (WGTI) in the WTO to study
the issue without a negotiating mandate.[72] The study process at the WGTI has continued since 1996. Before it could
conclude its work and recommend the desirability, if any, of a multilateral
framework on investment within WTO's ambit, the EU with the support of other
industrialised countries pushed the investment issue for negotiations at the
Fourth Ministerial Conference of WTO held in Doha in November 2001. Despite the
resistance of developing countries, who wanted to complete the study process at
the WGTI before agreeing to a negotiating mandate, the Doha Declaration
provided for the launch of negotiations on trade and investment after the Fifth
Ministerial Conference "on the basis of a decision taken, by explicit
consensus, at that Session on the modalities of negotiations".[73]

Despite significant efforts by developed countries to
push forward the development of a new WTO investment agreement, the Cancun
Ministerial Conference showed a strong resistance by developing countries to
initiate negotiations on this subject, as well as on other "Singapore issues".

In sum, there is no "international
standard" relating to the protection of IPRs as an investment that could
be invoked in the context of a clause requiring compliance with "the highest international standards".

10.
Genetic resources in investment agreements

The
acquisition of IPRs over genetic materials obtained by foreign companies will
give them, under investment agreements, an investors' status. Governments' acts
affecting such a property may raise complaints under applicable investment
agreements. There are situations in which some claims might be raised even in
the absence of IPRs. This section examines some of these possible situations.

Contracts or permits to access or exploit genetic
resources

Some countries (e.g., Brazil, Costa Rica, Andean Community, Philippines) have enacted regulations on the access to and benefit sharing from genetic
resources. Access to such resources is subject to States' authorisation, which
is often materialised in the form of one or several contracts with the State
and other stakeholders. In the case of Decision 391 of the Andean Community,[74]
for instance, the main contract is entered into between the State and the
recipient ("access contract"), but accessory contracts must be
established, as appropriate, between the applicant and the owner, possessor or
manager of the land where the biological resource containing the genetic
resource is located, the ex situ conservation centre, or the owner, possessor
or manager of the biological resource containing the genetic resource. An annex
to the access contract also needs to be established with the local, indigenous
or Afro-American community that provides the intangible component. One peculiar
feature of the regime is the way in which all these contracts are legally
interlinked. The invalidity of the access contract, established with the State,
entails the invalidation of the accessory contracts (article 44 of Decision
391), and the opposite is also true. The access contract may be invalidated or
terminated if an accessory contract, while entered into between private
parties, is found void (articles 35 and 44 of Decision 391).

Once
signed, an access contract may be deemed as an "investment" under the
standard definition of investment agreements, as such definition generally
covers licenses, authorisations, permits
and similar rights conferred pursuant to applicable domestic law. For example, the Canada-Argentina BIT (1993) defines
investment as inclusive of "a right conferred by law or under contract to
search for, cultivate, extract or exploit natural resources" (article
I(a)(v)). [75] Thus, if
an access contract were invalidated or a permit cancelled, the affected party
might consider that his "investment" has been jeopardised, provided that the
authorisation to get access created rights protected under domestic law.[76]

Materials collected under a contract or permit to obtain access to
genetic resources

The previous section refers
to the right to collect genetic resources emerging from a license or permit. A
further question is whether investors' rights may be invoked with regard to
collected materials in possession of a company or a genebank.

Genetic
resources are physically embodied in biological materials.[77]
The samples collected under
an access permit may be considered the
"property" of the collector, since pursuant to
general principles of civil law, legitimate possession of a movable good
attributes the possessor its property.[78] This means that the collector might, under
a broad definition of investment, claim protection as an investor with regard
to collected materials. If he were
requested, for instance, to give back the samples to the State or to share them
with third parties, claims of violation of investor's rights might arise.

It
is interesting to note that some investment agreements[79]
have explicitly expanded the concept of "investor" to include not
only nationals and enterprises of the Party, but non-profit organisations, such
as research institutes or NGOs, that may undertake bio-prospecting activtities.
Under such definition, those entities would be entitled to investor protection.

Materials received under material transfer agreements and license
contracts

Subject matter not protected
by IPRs may not be considered, as such, a covered investment, as long as no
specific right could be claimed therein under the host country's domestic law.
Non-protected materials may, however, be the object of material transfer
agreements (MTAs) or licensing contracts. Could investors' rights be claimed on
the basis of these contractual arrangements?

To examine this hypothesis
the case of Monsanto's RoundUp-Ready (RR) gene in Argentina may be
illustrative. Monsanto obtained State permission to commercially release the
gene but failed to obtain patent protection in Argentina. Transgenic soybeans
varieties soon became the preferred seed and 90% or so of all Argentine soybean
production is based on RR varieties. Despite the lack of legal protection over
the gene, some local seed companies entered into licensing agreements with
Monsanto. Has Monsanto obtained by this reason the "investors" status
under a broad definition of "investment"?

Some BITs (e.g. article 1(2)(e) of Switzerland-Venezuela
BIT) expressly limit the applicability of the concept of investment to concessions and other rights conferred in accordance
with public law. Quite clearly, the State cannot be liable if the
termination of a contract were due to a decision by the other party (or parties)
to the contract. If the government prohibited, however, the sale and
cultivation of transgenic seeds, thereby making it impossible to execute the
contract, the licensor would lose the potential income that it could have
otherwise generated. In this case, a complaint may be based on the cancellation
of the governmental license to commercialise the transgenic variety in question
(for instance if negative environmental effects were found). Regulatory action
of this kind cannot be understood as being expropriation under traditional
legal approaches on the matter. As noted above, however, jurisprudence under
NAFTA has used the scale of impact rather than the purpose of the measure as
the critical test to assess whether State action amounts to expropriation (IISD,
2001, p. 32).[80]

Seed technology in use agreements, sales agreements or other end-user
contracts and at the post-harvest stage

Can seed companies invoke
the provisions of an investment agreement to secure protection of their
technology in use agreements, sales agreements or other end-user contracts with
farmers in countries that otherwise do not provide statutory protection of that
technology (i.e. it is not protected by IPRs)? Can seed companies invoke rights
in the same way at the post-harvest stage, such as among processors or traders?

As mentioned, investment
agreements protect against certain measures by the host States. They do not
confer rights which are not recognised by the domestic law. A private contract
cannot create property rights over the materials it refers to. As a result,
seed companies would have little or no legal basis to claim investors' rights
in case of breach of or impediments to enforce a private contract. Similarly,
it seems unlikely that complaints relating to the post-harvest stage, such as
against processors or traders, could be upheld on the basis of investors'
rights.

Due to the territoriality of
IPRs, this legal scenario would not change if the technology at stake were
protected in the home country and/or in other countries, but were
off-protection in the country where the complaint is made.

Lack of effective enforcement of IPRs

Hypothetically, a seed
company might also argue that the lack of adequate State enforcement mechanisms
to combat the unauthorised reproduction of seeds ("brown bagging")
generates losses of income or market share that the State should compensate.
Although the overlapping investment and TRIPS protections create a grey area,
arguably the lack of enforcement procedures may be considered a State's violation
to TRIPS obligations but not a measure indirectly amounting to a taking
or expropriation.

Access to genomic data on a "non-commercial use only" basis

Can a company which provides
access to genomic data on a "non-commercial use only" basis use an investment
agreement as leverage to protect its interests over the commercial use of
research results?

This question may arise in
the case of data from a genomic database (e.g. Syngenta's rice genome database
used in Bangladesh). While contract law protects commercial interests in the
context of private relationships, investment agreements protect against certain
States' acts. Hence, claims grounded on investors' rights could only arise if
the State took measures that prevented the database owner to exploit its
"asset" or reduced the benefits that may be derived therefrom. For
instance, if the State enacted legislation stipulating that genomic data would
be freely accessible for public institutions, including for use in research
with potential commercial application, investors' rights-based claims might be
raised with some likelihood of success.

Access to technology and benefit sharing

The Convention on Biological Diversity requires
Contracting Parties to take legislative, administrative or policy measures, as
appropriate, with the aim that the private sector facilitates access to, joint
development and transfer of technologies that are relevant to the conservation
and sustainable use of biological diversity or make use of genetic resources
and do not cause significant damage to the environment, for the benefit of both
governmental institutions and the private sector of developing countries(article 16, para. 1 and 4).

Moreover, according to article 16.3, "each
Contracting Party shall take legislative, administrative or policy measures, as
appropriate, with the aim that Contracting Parties, in particular those that
are developing countries, which provide genetic resources are provided access
to and transfer of technology which makes use of those resources, on mutually
agreed terms, including technology protected by patents and other intellectual
property rightsÂ…". Several countries, such as Costa Rica,[81] have implemented this provision.

Investment agreements, however, limit the ability of
parties to apply "performance requirements" in a manner that goes
well beyond the standards set forth by the WTO Agreement on Trade-Related
Investment Measures.[82] For
instance, the US-Singapore FTA stipulates that "neither Party may impose
or enforce any of the following requirements, or enforce any commitment or
undertaking, in connection with the establishment, acquisition, expansion,
management, conduct, operation, or sale or other disposition of an investment
of an investor of a Party or of a non-Party in its territoryÂ…(f) to transfer a
particular technology, production process, or other proprietary knowledge to a
person in its territory" (article 15.8.1(f)).[83]

Although there is some room for interpretation of the
scope of this obligation, it may be read[84]
as preventing a contracting party to impose or enforce the requirements for
transfer of technology contained in access legislation.

11. Right to sue the State

Friendship,
Commerce and Navigation (FCN) treaties, and investment treaties that pre-dated
the establishment of the international Centre for Settlement of Investment
Disputes (ICSID), provided for State-to-State disputes, as it is still the case
today in the framework of the WTO. However, investment agreements developed in
recent decades have also opened the possibility to resort to investor-State procedures based on binding
arbitration[85]
through the ICSID, or other organisations, such as the International Chamber of
Commerce and the United Nations Commission on International Trade Law
(UNICTRAL). Investors can
also, in the case of regional agreements, directly bring a claim before
regional dispute settlement bodies.

While both contracting parties have equal access to
State-to-State dispute settlement, in the case of investor-State procedures,
there are ad hoc and institutional processes, access to which may be left to
the preference of the investor. The only limitation in some cases is that once
the investor submits a dispute to an investor-State procedure, this choice can
prevent recourse to other procedures.[86]

Moreover,
investor-State proceedings

are not bound by precedents, are not
necessarily obliged to be open to the public, or to publish final decisions.
The decisions have only limited avenues for appeal and cannot be amended by the
domestic legal system or a supreme court. The nature of the dispute resolution
procedures can provide a great deal of leeway in how cases will be decided.
..[T]hey could encourage investors to pursue their case even if the merits are
not all that strong (Hallward-Driemeier, 2003).

Investment
agreements thus "give ascendancy to the investor, who is the principal
beneficiary of rights contained in agreements entered into between States" (UNCTAD, 2003b, p. 4). Not surprisingly, the principal disputes relating to
investment agreements have arisen[87] between the investor and the host State, not inter-States. Given the broad
definition of "investment", as examined above, States may confront
claims of substantial damages in cases where investors lose market share or the
value of their companies is diminished due to host State measures. For
instance, last year, a tribunal in Stockholm required the government of the
Czech Republic to pay one company, Central European Media, US$350 million for
violation of a BIT that deprived the company of a stake in an English-language
television station in Prague (Newfarmer, 2003, p. 25).

The
consideration of intellectual property rights as an investment adds more
confusion to an already unclear scenario for the interpretation and application
of international IPR conventions. "Forum shopping" and conflicting
decisions are the likely outcome of the coexistence of different layers of IPR
protection and mechanisms for dispute settlement.

Under WTO rules, there is no requirement of reparation of damages
suffered by the private parties involved. A WTO panel may instruct the
offending Member to bring the inconsistent measure in conformity with WTO
obligations and, failing that, allow the prevailing Member to resort to
unilateral counter-measures, suspension of the treaty and temporary
compensation or suspension of concessions. To the extent, however, that a
TRIPS-inconsistent measure is also inconsistent with the host State's
obligation under an investment agreement, the foreign investor may not be
restricted to seeking prospective withdrawal of the measure by petitioning his
government to initiate State-to-State dispute settlement procedures at the WTO.
He may file for binding arbitration and seek for damages under the applicable
investment agreement. Additionally, the initiation of arbitration proceedings
against the host State by an investor does not preclude the investor's State
from exercising at the same time diplomatic protection and launching WTO
dispute settlement proceedings (Verhoosel, 2003, p. 495).

An important question is whether WTO rules may be deemed part of the
international customary law that a tribunal may apply in deciding on an
investor-State dispute. If such were the case, the implications would be far
reaching: an IPR holder might, as an investor, seek direct reparation of damages from the State that
allegedly failed to recognise his rights under the TRIPS Agreement. This would
nullify the principle that private parties cannot directly invoke WTO law and
claim damages thereunder. Interestingly, USA argued in the Methanex case,
initiated by a Canadian company, that WTO agreements are not part of the
customary international minimum standard of treatment under article 1105(1) of
NAFTA.[88]
Otherwise, USA argued, the NAFTA Parties would potentially be subject to a vast
number of claims for monetary damages based on obligations that were not
assumed with the understanding that their breach could give rise to such
claims.[89] In the
Mondev case, the tribunal expressly excluded the possibility of using
the provisions of other treaties, such as the WTO agreements, between the NAFTA
parties, to define the content of the "fair and equitable treatment".[90]

Although this
jurisprudence would seem to limit the possible use of investment agreements as
a vehicle for obtaining direct reparation of TRIPS violations, it does not
exclude that possibility, especially in the absence of clear provisions in such
agreements. But even if WTO law were not directly applicable to an investment
dispute, it may be part of the interpretative context[91] of obligations provided for under
investment agreements.

Conclusions

Investment
agreements generally apply to all types of "assets", regardless of
their tangible or intangible nature and the sector where they are invested,
including various forms of intellectual property. Thus, intellectual property rights, whether
registered or not, are protected investments under BITs and trade agreements
that incorporate rules on investment. This adds another layer of treaty-based
protection on rights protected under the TRIPS Agreement and other
international conventions. But it goes beyond TRIPS, since investment
agreements apply to rights not covered by the TRIPS Agreement, and incorporate
the national treatment principle without the exceptions provided for under
international IPR treaties.

It is unclear the extent to
which rights granted by investment agreements may be used to substantiate
claims in the area of intellectual property rights. An area of particular
concern may be the granting of compulsory licenses, since the patent owner
would be normally able to claim an economic loss, even though the patent rights
will continue in force and he will be able to compete with the compulsory
licensees. The revocation of patents and some exceptions to patents and other
IPRs may also be challenged on the grounds of violation of investors'
rights in some circumstances.

Investment protection
generates grey areas that may be used to challenge national measures, even if
they are TRIPS-consistent. Although there are good arguments to counter such
challenges, there is legal scope for dispute and for threatening host countries
with trade retaliations. Should the IPR title holders prevail, there would also
be room for the dispute mechanisms to induce changes of national IPR
legislation in host countries to conform to the rights practiced under the
agreement.

The standards set forth in
investment agreements may influence not only national IPR legislation and
practices, but also multilaterally negotiated IPR standards. The MFN clauses in
investment agreements contribute to a global elevation of protection standards.
If negotiations on investment were initiated in the framework of the WTO,
pressures to replicate the highest levels of investment protection for IPRs can
be expected.

In
view of the important implications that investment agreements may have for the
implementation of national policies in the area of intellectual property
rights, a number of safeguard provisions seem necessary, even inevitable, in
order to preserve under national control basic aspects of IPR policies and the
management of genetic resources and data. Careful attention should be given, in
particular, to the impact of MFN clauses, which may erode exceptions agreed
upon in particular agreements, and to the possibility of multiple claims based
on alleged violations or "non-violations"[92] of IPRs as well as of
investors' rights.

Cosbey,
A., Mann, H., Peterson, L., and von Moltke, K. (2004), Investment and
sustainable development. A guide to the use and potential of international
investment agreements, IISD, Winnipeg,

Charolles,
Valérie (1997), "Treatment of Investors and their Investments: National
Treatment, Most Favoured Nation Treatment and Transparency", in Multilateral
Agreement on Investment State of Play as of February, 1997, OECD, Paris.

[1] RTAs containing rules on investmentusually include provisions on
the right to establish a presence in other countries covered by the RTA, and
protection principles found in BITs (OECD, 2003).

[2] Negotiations on a UN Code of Conduct on
Transnational Corporations and on an International Code on Transfer of
Technology were launched during the late 1970s, but collapsed due to the
resistance of developed countries. See Correa and Kumar, 2003, Chapter 3.

[3] Even comparing flows in the three years
after a BIT was signed to the three years prior, there was no significant
increase in FDI (World Bank, Global Economic Prospects, 2003).

[4] See, however, the draft
US model BIT (2004), which applies the national treatment principle to the
pre-establishment phase (article 3.2), available at http://www.state.gov/e/eb/rls/prsrl/28923.htm.
The US-Singapore FTA, for instance, defines "investor of a Party" as
"a Party or a national or an enterprise of a Party that is seeking to
make, is making, or has made an investment in the territory of the other
Party; provided, however, that a natural person who is a dual national shall be
deemed to be exclusively a national of the State of his/her dominant and effective
nationality" (Article 15.1.17 US-Singapore FTA) (emphasis added).

[5] The scope and content of BITs have been standardised over the years. The
wording of individual provisions still varies in some cases, while differences
are most significant between BITs signed some decades ago and those signed more
recently. The main provisions deal with: the scope and definition of foreign
investment; admission and establishment; national treatment in the
post-establishment phase; MFN treatment; fair and equitable treatment;
guarantees and compensation in the event of expropriation; guarantees of free
transfers of funds and repatriations of capital and profits; and dispute
settlement provisions, both State-State and investor-State (UNCTAD, 2003a, p.
89)

[6] In
February 2004, the US State
Department released a draft text of its revised BIT template (available at http://www.state.gov/e/eb/rls/prsrl/28923.htm).
The new draft model BIT includes extensive transparency commitments on the part
of host governments, incorporates a range of changes to the investor-state
dispute settlement process, adds new language to clarify the meaning of certain
substantive provisions, including those on expropriation and the minimum standard
of treatment (in line with earlier US FTAs), includes provisions on labour and
the environment, and contemplates the creation of a future appellate body or
mechanism which would provide a means for review of arbitral awards. See INVEST-SD:
Investment Law and Policy Weekly News Bulletin, February 23, 2004 (available at http://www.iisd.org/investment).

[7] The Bush Administration also revised the
investment template used in US FTAs as per a series of requirements set down by
the US Congress.

[8] The
draft Free Trade Area of the Americas (FTAA), still under negotiation, also
includes a chapter on investment.

[9] As illustrated by the role of the
US-ASEAN Business Council and of the American Chambers of Commerce in the
negotiation of FTAs.

[10] See,
e.g., the various reports on the recent US FTAs by the Industry Functional Advisory Committee on
Intellectual Property Rights for Trade Policy Matters (IFAC-3) advising USTR
(available at http://www.ustr.org).

[12] There has been no attempt to review the
large number of investment agreements adopted or in force. The study is rather
based on a sample of provisions identified in agreements entered into with
different developed countries. Given the extensive use of "model" BIT
agreements and of pre-existing FTAs to negotiate new ones, it is expected that
the study will provide a fairly comprehensive analysis of the subject.

[13] Some agreements, however, are limited to foreign direct investments.
See, e.g., the agreement between EFTA and Mexico (2000), which applies to
"investment for
the purpose of establishing lasting economic relations with an undertaking such
as, in particular, investments which give the possibility of exercising an
effective influence on the management thereof " (article 45).

[16] See, e.g., one of the (still bracketed)
proposals in FTAA (article 1.1). According to current IPR law, secret
"technical process" or "know how" may be protected as trade
secrets or undisclosed information (see article 39 of the TRIPS
Agreement). "Goodwill" is the benefit and advantage of the good name,
reputation and connection of a business. It may be protected under unfair
competition law (which condemns
dishonest commercial practices) or, in common law countries, under the doctrine
of "passing-off" (the wrong of misrepresenting one's business goods
or services as another's, to the latter's injury, generally by using a
confusingly trademark or trade name). Protection often encompasses not only the
use of trademarks, but also of a particular packaging, "get up" or
"trade dress" and advertising styles (Bently and Sherman 2001, p.
673-678).

[17] Most developing countries that introduced
plant variety protection did it during the last ten years, in many cases after
having entered into BITs.

[18] This
issue was discussed during the negotiation of the draft MAI. See OECD, DAFFE/MAI/NM(97)2, p. 101.

[22] For instance, during discussions of the draft MAI, some
delegations proposed excluding copyrights and neighboring rights, as well as
databases. See OECD, DAFFE/MAI/NM(97)2, p. 117.

[23] It
is to be noted that in countries of common law tradition, trademarks may be
acquired by use of the sign, without registration.

[24] This
is a very common situation. For instance, developing countries only receive a
fraction (in some cases a very minor one) of patent applications made in the USA or Europe. See WIPO Industrial Property Statistics at http://www.wipo.int/ipstats/en/.

[28] Some investment agreements also include exceptions
of a general nature (e.g. public order, health, national security) with regard
to national treatment and the MFN clause. See Moncayo von Hase, 2003, p. 76 and
UNCTAD, 1999, p. 15.

[29] See, e.g. article 3.1 of the draft US model BIT (2004) and article 15.4.1 of the US-Singapore FTA. The MFN clause is also
applicable in these agreements to the pre-establishment phase.

[31] See article 3.1, footnote 2 (referring to
the "acquisition" of rights), and part IV of the TRIPS Agreement.

[32] Exempted from the MFN obligation are any advantage, favour, privilege or
immunity accorded by a Member: "(a) deriving from international agreements on
judicial assistance and law enforcement of a general nature and not
particularly confined to the protection of intellectual property; (b) granted
in accordance with the provisions of the Berne Convention (1971) or the Rome
Convention authorising that the treatment accorded be a function not of
national treatment but of the treatment accorded in another country; (c) in
respect of the rights of performers, producers of phonograms and broadcasting
organisations not provided under this Agreement; (d) deriving from
international agreements related to the protection of intellectual property
which entered into force prior to the entry into force of the Agreement
Establishing the WTO, provided that such agreements are notified to the Council
for Trade-Related Aspects of Intellectual Property Rights and do not constitute
an arbitrary or unjustifiable discrimination against nationals of other
Members" (article 4).

[33] Although GATT/WTO jurisprudence on "like
goods" may illustrate how this issue could be tackled, it does not provide
concrete guidance for interpreting the "like circumstances" concept
in the context of investment rules. In practice, it may be quite difficult to
establish when "like circumstances" arise.

[34] E.g., the US Semiconductor Chip
Protection Act (1984) and the European Directive on the Protection of Data Bases
(Directive 96/9/EC, 11 March 1996).

[35] See, e.g., article 3 (3) of the UPOV
Convention 1978 ("Notwithstanding the provisions of paragraph
(1) and paragraph (2), any member State of the Union applying this Convention
to a given genus or species shall be entitled to limit the benefit of the
protection to the nationals of those member States of the Union which apply
this Convention to that genus or species and to natural and legal persons
resident or having their registered office in any of those States").

[36] This exception is not limited to
reciprocity; it also allows for MFN exceptions in respect of IPRs in general
(UNCTAD, 1999, p. 20).

[38] For example, the US-El Salvador BIT (1999) provides
in article II.3(a) that
"each Party shall at all times accord to covered investments fair and
equitable treatment and full protection and security, and shall in no case
accord treatment less favourable than that required by international law".

[39] The diverging views about the content of
this standard are well illustrated by the heavily bracketed text contained in
the FTAA draft: "[Article 9.1. Each Party [shall accord] [shall at all
times ensure] [to the investments of investors of another Party [made in its
territory]] [to the investors of another Party and their investments]
[treatment in accordance with international law, including] fair and equitable
treatment [as well as full protection and security] in accordance with the
[norms and] principles of international law [and shall not impair their
management, maintenance, use, enjoyment or disposal through unjustified or
discriminatory measures]".

[40] As noted below, depending on its
formulation, this principle may provide the basis for the application of
disciplines of international law other than those contained in an investment
agreement.

[46] While the number of expropriation cases that have arisen from BITs was small in
the past, in the last few years it has jumped substantially. Having settled
about 60 cases in four decades, ICSID had over 40 cases pending by 1993
(Hallward-Driemeier, 2003).

[47] For instance, the slow
and incremental encroachment on one or more of the ownership rights of a
foreign investor that diminishes the value of his investment, even though the
property remains vested in him, is often considered "creeping
expropriation" (UNCTAD 2000b, p. 12).

[48] US BITs also
include a clause stipulating that "neither Party shall in any way impair by unreasonable and
discriminatory measures the management, conduct, operation, and sale or other
disposition of covered investments".

[49] See also the Germany-Bangladesh BIT
(1981) which includes in its protocol, section 3, "the taking away or restricting
of any property right which in itself or in conjunction with other rights
constitutes an investment" (emphasis added).

[51] An exception of this type is also contained in the draft US model BIT (2004) (article 6.5).

[52] One reason to seek protection under expropriation
rules of investment agreements, is that the rule generally applicable is based
on payment of a "prompt, adequate and effective compensation", while
under the TRIPS Agreement, the
right holder shall only be paid an "adequate remuneration in the
circumstances of each case, taking into account the economic value of the
authorisation" (article 31 (h)).

[54] See,
e.g., US Federal Trade
Commission (FTC) (2003) and National Research Council (2003); see also http://www.pubpat.org.

[55] See Article 5.A(3) of the Paris
Convention for the Protection of Industrial Property (1967), which permits
revocation in case of lack of payment of maintenance fees.

[56] Thus, in the case of the Chile-US FTA "[a] Party may revoke or cancel
a patent only when grounds exist that would have justified a refusal to grant
the patent" (Article 17.9.5). A footnote adds that fraud in obtaining the
patent may also be cause for revocation. Article 15.9.4 of the US-Central
America FTA (CAFTA) is broader in permitting that a Party may also provide that
"inequitable conduct may be the basis for revoking, cancelling, or holding
a patent unenforceable" and explicitly referring to revocation in
accordance with Article 5.A(3) of the Paris Convention. The US-Singapore FTA
stipulates that the patent may be revoked, besides fraud and misrepresentation,
on grounds that pertain to the insufficiency of or unauthorised amendments to
the patent specification,Â nondisclosure or misrepresentation of prescribed
material particulars, fraud, and misrepresentation (article 16.6.4).

[57] A
provision to this effect is also contained in the draft FTAA (article 13.6).

[59] The Indian Patent Second
Amendment Act (2002) provides that applicants must disclose in their patent
applications the source of origin of the biological material used in the
invention (section 10). It also allows for oppositions to be filed on the
ground that the complete specification does not disclose or wrongly mentions
the source or geographical origin of biological material used for the
invention. The grounds for rejection of the patent application, as well as
revocation of the patent, include non-disclosure or wrongful disclosure of the
source of origin of biological resource or knowledge in the patent application,
and prior disclosure of knowledge, oral or otherwise.

[60] For instance, the Andean Community's Decision
391 (1996) establishes that any IPRs or other claims to resources shall not be
considered valid if they were obtained or used in violation of the terms of a
permit to access biological resources found in any of the Andean countries, as
regulated under that Decision.

[61] Brazil has suggested that "Article 27.3 (b) should be amended in order to
include the possibility of Members requiring, whenever appropriate, as a
condition to patentability: (a) the identification of the source of the genetic
material; (b) the related traditional knowledge used to obtain that material;
(c) evidence of fair and equitable sharing; and (d) evidence of prior informed
consent from the Government or the traditional community for the exploitation
of the subject matter of the patent" (Submission by Brazil "Review of article
27.3(b)", IP/C/W/228, 24 November 2000, p. 5). See also "The Relationship Between the TRIPS Agreement
and the Convention on Biological Diversity and the Protection of Traditional
Knowledge", Submission by Bolivia, Brazil, Cuba, Dominican Republic,
Ecuador, India, Peru, Thailand, Venezuela, IP/C/W/403, June 24, 2003.

[62] See "Article 27.3(b), The relationship between the TRIPS agreement and the
Convention on Biological Diversity, and the protection of traditional
knowledge", Communication from Switzerland, IP/C/W/400, 28 May 2003, para. 9.

[63] "Review of article 27.3(b) of
the TRIPS Agreement, and the relationship between the TRIPS Agreement and the
Convention on Biological Diversity (CBD) and the protection of traditional
knowledge and folklore . A concept paper", Communication from the European
Communities and their Member States, IP/C/W/383, 17 October 2002, para. 55.

[64] The US Industry Functional
Advisory Committee on Intellectual Property Rights for Trade Policy Matters
(IFAC-3) has argued that the possibility of preventing enforcement of a patent
due to actions that are found to constitute inequitable conduct should be
limited to acts that are material to the patentability of the invention. See
"Report of the Industry Functional Advisory Committee on Intellectual
Property Rights for Trade Policy Matters (IFAC-3)" of February 28, 2003, available at http://www.ustr.gov/new/fta/Cafta/advisor/ifac03.pdf,
p. 14.

[65] It may be argued that the lack of
disclosure of the origin of claimed biological materials may be deemed a
"fraud or misrepresentation" and that concerns of developing
countries may be thereby addressed. However, most patent laws will not consider,
in the absence of a specific rule, that failing to disclose the origin of such
materials amounts to fraudulent behaviour.

[66] This concept does not include imports of counterfeiting
products.

[68] States cannot be assumed to have accepted
future international standards, such as those that may emerge from the
negotiation (if successful) of a Substantive Patent Law Treaty in WIPO. See,
e.g., GRAIN (2003) and Correa and Musungu (2002).

[69] See
article 38 of the Statues of the International Court of Justice.

[70] Unless bilateral and regional treaties
were deemed "international" for the purposes of that clause -- an
interpretation that would be hard to sustain.

[76] See, e.g., the definition of
"investment" under article 1, footnote 2, of the draft US model BIT (2004).

[77] For instance, under Decision 391 of the
Andean Community a distinction is made between "genetic resources",
which are deemed "goods or patrimony of the Nation or of the State"
and "inalienable and not subject to prescription or to seizure or similar
measures" (article 6), and "biological materials" that contain
them, which are subject to the applicable property regimes.

[78] The materials in possession of the CGIAR
Centres are held "in trust" of the international community under an
agreement with FAO. Hence, the Centres do not claim property rights therein.

[79] E.g. Article 15.1.7 of
the US-Singapore FTA defines "enterprise" as "any entity
constituted or organised under applicable law, whether or not for profit, and
whether privately or governmentally owned or controlled, including a
corporation, trust, partnership, sole proprietorship, joint venture,
association or similar organisation; and a branch of an enterprise".

[80] The draft US model BIT (2004) apparently
aims at attenuating this test by indicating that in determining whether an
indirect expropriation exists, "the fact that an action or series of
actions by a Party has an adverse effect on the economic value of an investment,
standing alone, does not establish that an indirect expropriation has
occurred" (Annex B, section 4.(a)(i)).

[81] See article 63 (3) of the Biodiversity
Law. See also article 17 of Decision 391 of the Andean Community.

[82] For an analysis of the obligations under
WTO rules relating to performance requirements, see Correa and Kumar (2003).

[83] Similar wording is contained in the draft
US model BIT (1994), article 8.1(f).

[84] The only exceptions admitted in the US-Singapore FTA
are the following: (i) when a Party authorises use of an intellectual property
right in accordance with Article 16.7.6 (Patents), and to measures requiring
the disclosure of proprietary information that fall within the scope of, and
are consistent with, Article 39 of the TRIPS Agreement; or (ii) when the
requirement is imposed or the commitment or undertaking is enforced by a court,
administrative tribunal, or competition authority to remedy a practice
determined after judicial or administrative process to be anticompetitive under
the Party's competition lawsÂ” (article 15.8.3 (b)).

[85] For instance, article 48 of the EFTA-Singapore treaty, 2002, stipulates
the following:

1. If an investor of a Party considers that a measure
applied by another Party is inconsistent with an obligation of this Chapter,
thus causing loss or damage to him or his investment, he may request
consultations with a view to solving the matter amicably.

2. Any such matter which has not been settled within a
period of six months from the date of request for consultations may be referred
to the courts or administrative tribunals of the Party concerned or, if both
parties to the dispute agree, be submitted to one of the following:

a) arbitration under the Convention on the Settlement of
Investment Disputes between States and Nationals of other States (the "ICSID Convention"), if this Convention is available;

b) conciliation or arbitration under the Additional Facility
Rules of the International Centre for the Settlement of Investment Disputes;

c) arbitration under the Arbitration Rules of the United
Nations Commission on International Trade Law.

3. A Party may conclude contractual agreements with
investors of another Party giving its unconditional and irrevocable consent to
the submission of all or certain types of disputes to international
conciliation or arbitration in accordance with paragraph 2 above. Such
agreements may be notified to the Depositary of this Agreement.

[86] However, the investor's
State may become engaged in the dispute if the investor is denied, unjustifiably,
the remedy available under the investor-State dispute settlement procedure
(UNCTAD, 2003b, p. 56 and 59).

[87] Evidence points to a significant increase
in the use of investor-State dispute settlement procedures under investment
agreements since 1997. See Cosbey, Mann, Peterson and von Moltke, 2004, p. 15-16.

[88] "Article 1105Â§.1: Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security."

[92] Although
developing countries have resisted in WTO the application of
"non-violation" complaints in the context of the TRIPS Agreement
(article 64), recent free trade agreements with the USA provide for the
application of such complaints to intellectual property cases, thereby
potentially expanding the scope of obligations under the Agreement. See, e.g.,
Annex 22.2 of the US-Chile FTA. See also Abbott (2003).

* This study was commissioned by GRAIN as an independent exploration into the implications of bilateral investment treaties, and free trade agreements with chapters on investment, in terms of international standards for the protection of intellectual property rights. GRAIN is making this study publicly available, through its website, as a resource for further research and analysis. However, the views expressed in this work are those of the author and should not be attributed to GRAIN. The author may be contacted at mailto:quies(at)sion.com. For more information about GRAIN, visit http://www.grain.org